Dubai gold rates ease as stronger rate-hike expectations weigh on bullion.
Dubai: Gold prices in Dubai eased on Monday, offering UAE shoppers some relief as bullion came under pressure from growing expectations of higher US interest rates.
The Dubai 24K gold rate fell to Dh533 per gram from Dh536.75 at the previous close, while 22K gold declined to Dh493.75 from Dh497.
The decline came as global gold markets responded to a more hawkish outlook for US monetary policy. Federal Reserve Chairman Kevin Warsh said policymakers still have “work to do” to bring inflation back to the central bank’s 2 per cent target.
Why gold fell
Gold came under renewed pressure as traders raised their expectations for a US interest-rate hike in September following Warsh’s comments.
According to Reuters, markets were pricing in a 58 per cent probability of a September rate hike, up from 36 per cent before Warsh’s remarks. Expectations for a December increase also climbed to 89 per cent, based on CME FedWatch data.
The shift matters for gold because the precious metal does not pay interest or dividends. When interest rates and bond yields rise, gold can become relatively less attractive compared with interest-bearing assets.
The US dollar has also strengthened, reaching a more than one-week high, according to the latest Reuters update.
“Gold is getting slapped hard as Chair Warsh affirms that inflation isn’t meaningfully slowing and the Fed has ‘work to do,’” independent analyst Tai Wong said, according to Reuters.
What analysts say
Vijay Valecha, Chief Investment Officer at Century Financial, said gold had fallen below $4,600 an ounce ahead of Warsh’s speech, with some of the decline attributed to profit-taking after bullion hit a three-month high earlier in the week.
He said investors were also assessing the outlook for US monetary policy, as policymakers remained divided over the appropriate direction for interest rates.
Despite the short-term pullback, Valecha said the broader outlook for gold remained supportive.
“Robust investment flows, central-bank accumulation and concerns around U.S. fiscal sustainability continue to underpin the bullish backdrop,” he said.
Valecha added that gold had retreated from its recent high of around $4,696 an ounce but remained above the key $4,369 breakout support level.
In the near term, Valecha identified $4,650–$4,700 an ounce as the immediate resistance zone, while $4,550 was the first intraday support level. A break below that level could send prices towards $4,500, he said.
India rates
Gold prices also eased in India.
The 24K gold rate fell to ₹156,760 per 10 grams from ₹158,240, marking a decline of ₹1,480 per 10 grams.
The 22K rate dropped to ₹143,700 per 10 grams from ₹145,050, down ₹1,350.
Reuters also reported that gold discounts in India narrowed sharply during the week as demand weakened amid speculation that the government could consider reversing a recent increase in import duties.
The bigger picture
The latest decline comes after a strong run for gold. Valecha said the precious metal gained more than 13 per cent in August, marking its strongest monthly performance since January and one of its biggest monthly gains this century, according to the market commentary provided.
Gold’s longer-term support has come from renewed demand for physically backed gold exchange-traded funds, continued central-bank purchases and concerns over US fiscal sustainability.
Bloomberg also described the market as being caught between a more dovish US Treasury stance and a more hawkish Federal Reserve.
Nicky Shiels, head of research and metals strategy at MKS PAMP, described the market as a “tug of war”, but said the so-called debasement trade could continue into September, providing further support for gold prices.
